Economist on Stocks Selloff: This Storm Will Pass

High Frequency Economics Chief U.S. Economist Jim O'Sullivan points out investors should expect Wall Street to stabilize following this week's two-day selloff.

This transcript has been automatically generated and may not be 100% accurate.

... the the ... the calling it would take that chance ... this is dumb but stocks and bones on NASA said Thursday its second day of heavy losses in response to the Ghosn's plan to taper its bond buying clothes ... the morning on Michael Casey welcome to the use of well it's a beautiful sunny day here in York the storm clouds swollen on world markets ... the Dow coffee its second straight loss of one two points Tuesday ... and bond yields importantly spiking to almost two year highs ... the selloff comes amid growing concerns that atomic outlook in China ... and just generally fee is that we never get to doing things that to tell us what this all means that on the investment outlook ... dose of high frequency Economics joins us good morning Jim ... morning Michael ... so having this really mean it this was a disaster said tension the mock it's really just just ... gotten going quite fit was last up and it's ... un ... isn't as bad as ... it is and if you guessed it will invest the most is is with these big deal of the markets might not be too well I think ultimately probably not mean the Fed about the Fed is telling people that we're going to ... stop probably stop it's the easy process over the course of the next year ... but people are hearing that and maybe going a step further and started to extrapolate Ikea no Kellie force the Fed will be tightening ... but there's been a big adjustment in terms of taking expectations ... not just the hint of easing expectations in the last week so ... the surly been a big adjustment to not see that's rattled ... markets generally does a lot of uncertainty ... and what ultimately ... unit that is not tightening here and this is not nineteen eighty four so I suspect this is a bit of a blip in Ifo is not a prerequisite of course in reference to the fact is that was the year on record for the bomb up to the survey was Avici markets were taken by surprise the trend by Fed tightening in the bond market brand we had an effect ... on tightening ... but that was a real ... that I was his idea of it to Vodafone owns didn't lose money in them and she did lose money and and and and what we're talking about here is not yet taking the right thing is still ... probably least your Hathaway summit of the eyes in mock it's of them have finally come back a little sore feet supported higher ... and his assistant adjustment this brings us back to level with the price a new reality and in the get back to more stability or who do you think we have ... more to come and I was I mean I think ultimately the direction of the last couple days is the right one Telefónica I think the economy is improving ... and serving as time goes forward ... you're getting closer to the point when the Fed will actually be tightening and ... you think about the ten year Treasury yield is kind of expected ... and short-term rates or the next ten years has various risk premiums so ... as time goes on I do think rates will go up ... but we've seen what a thirty basis point move this week in the ten year Treasury or semi five basis points is beginning in May to this a lot of what I would extrapolate this type of ... of of change right to ... know one of the of course most insane more threats that come up significantly as you'd expect as well ... that's being considered to be a Motu of of growth to some extent given the deposit to intensive refinancings and ... Groupon prices in the lock in that building costs this much consumers ... to have the risk is that the marker reaction as ups of killing the golden goose business ultimately if there is if we continue to see thirty forty basis points a week ... after the next day a month and a half then I would say yes ... but my guess is that this won't continue and frankly if it did continue ... that would be a signal back to the Fed to say hey we're not can it tapers ... because they don't want the economy is slowly there ... they just one and the easy process and have the economy cruising along at a decent ... enough pace for growth to bring down unemployment but ... if there's enough of an overreaction markets to what they're saying ... and then that'll feedback in terms of what the actually do ... so ... and I think there is a limit to how much the bond market sell off here in the near term ... unity your U S economist versus gonna throw you a foreign question is is is it so important it is time that China is ... of ... concern it is slowing ... that's awesome people expected and that seems to be some concerns in the money markets ... is there a way in which this can feed through to the U S to Review supposes an a but isn't that disinflation effect the Apple has also growth concerns ... what does that mean for us well I mean you always think in terms of real ... tree flows ... and in terms of financial contagion ... and frankly the financial contagion effects with China if early limited because that ... they really not open financial markets compared with the rest the world so do the stand ... there are ... banking ... issues in China it doesn't really directly affect us to grow so much ... whoever if that impact their economy and growth in China ... collapsed and that certainly would affect global growth in general no not convinced that that's happening ... the new numbers of generally been ok they're getting seven or eight percent GDP growth in China ... Dave you're not getting ten percent anymore Peter seventy seven or eight percent GDP growth ... and ultimately again in China ... if it comes to it ... man I would imagine that the Chinese government would step in ... and to to to help the situation so there's a little bit of lip right now looks like in many markets over there ... and but ultimately the trend in growth in China is still at least seven percent for year ... what is it that that the China concerns capture it isn't just a part of the rules is that ... the timing might be off threatening this is the isthe cleanly they see that with a strong run-up ... monster cover that they can pull back ... on the onthe easing the summit Tuesday said not such a tight union was listening ... but it but it also to hear this it's it's a ... the mock it's a very nervous because ... I lived in eleven of China's new slow benefits to one instance in you can still really Unemployment seven point six percent ... is this really the money he should be to be doing well of course are not doing it yet and they're basically giving us notice that ... it could happen later this year in which means nor lived in September ... my guess is we'll will start happening in September ... and if it's not September to December ... but we're still talking ... three months away ... and so will see how the were looks of three months' time now frankly ... if between now and September FOMC meeting the ... day SB five hundred is down fifteen percent because of global and financial stress ... pensions or the Fed won't go ... so I mean they're laying out there ... to giving us as a game plan for the next year so ... it's very gradual it's not actually tightening it's a slowing down the rate of easing ... and played it turns out there's an overreaction markets are other factors are causing stresses ... then they want to do it for you money and it's about what would suggest it's ... a lot to outperform ... well ... certainly from the U S perspective ... and in bond yields are ... are very low and over time by mules local hire ... minutes or to even been my view ... free for the past year and ... again I think ... the move in the last week is not something you want extrapolating a thirty forty basis points a week but ... ultimately this level of interest rates artificially low because the Fed ... could again be very slow but reversing that ... but ultimately rates are higher ... the equity market ... and I look at the level of earnings in the PE ratios ... and it strikes me that the equity market is still ... if anything on the cheap side of a fair value and ... if you allow for the fact that interest rates are ... usually loan will stay in use legal for ... quite awhile even as they start packing up ... maybe you can make the case that ... a fair value p if anything is even higher than usual but ... right now we compare even with the beginning of tightening cycles in ... nineteen eighty four nineteen ninety nine two thousand and four ... and or real tightening cycles number talk about here ... and summer is cheaper than it was going into those tightening cycles so